Staff will be forced to pay more to maintain their company pensions because of
new rules that will see employers contributing less, actuaries have warned.

Under laws introduced by Labour, employers will have to enrol all their staff into a company pension scheme from 2012, unless workers specifically opt out.

A study by the Association of Consulting Actuaries says many of Britain’s largest employers believed the change would force them to scale back the generosity of these schemes.

Almost half said the new regulations would force them to reduce the contributions they made on behalf of existing members to pay for the extra costs of enrolling millions of new workers.

Employees would therefore be forced to increase the contributions they made from their wages to protect the value of their pension. The cutbacks are likely to affect middle earners more because they tend to be enrolled in company schemes already, while lower paid workers tend to rely on a state pension.

The changes could result in employers cutting by half the contributions they make to the pension pots of existing members.

Under the new rules, known as “auto-enrolment”, companies will only have to contribute the equivalent of 1 per cent of a worker’s salary, rising to 3 per cent in 2017.

Currently, employers contribute an average of 6.1 per cent of workers’ salaries into their pensions. Experts fear the change will mean employers cutting their contributions “to a minimum”, with the norm dropping closer to 3 per cent. This would mean existing workers retiring with pension pots worth tens of thousands of pounds less than they expected unless they raised their own contributions sharply.

In the study, 41 per cent of the 210 biggest employers said they expected to cut contributions. The businesses surveyed by the association, the world’s largest actuarial organisation, have more than £166billion worth of pension funds.

The identities of the firms that took part have not been disclosed but it is understood several “household names” were planning cuts.

“Among those larger employers, a surprising number are looking to reduce their contributions after auto-enrolment begins,” a spokesman for the association said.

The Coalition has pledged to push ahead with Labour’s pension laws, which will only come into effect in 2012. The scheme was drawn up following a review conducted by Lord Turner, which also recommended a later retirement age and a more generous state pension.

Coalition ministers have launched a consultation to consider changes to the introduction of the auto-enrolment rules following the financial crisis.

The study is the actuarial body’s formal response to that consultation and will add to pressure for the introduction of the laws to be delayed or watered down.

Experts said they expected the new rules would result in cuts to people’s retirement savings.

Steve Bee, a partner at Paradigm Pensions, said: “Anyone that thinks a 3 per cent contribution is going to produce a decent pension is crazy. It is a grave mistake to think that this is where the level of contribution should be.”

Tom McPhail, a pensions expert at Hargreaves Lansdown, the financial adviser, said the changes “will inevitably lead to some employers cutting their pension contributions down to the minimum”.

He added: “This doesn’t mean the auto enrolment plans are a bad idea, it just means that we must not assume that the new auto enrolment rules mark the resolution of the pensions crisis. They are merely the start of the solution.”

Howard Archer, an economist at the analysts Global Insight, said: “Companies have been looking hard to reduce their pension burden in a tough economic environment where limiting costs is becoming ever more paramount.”

New research has found that many companies were already struggling to meet their commitments. A third of the firms in the FTSE 100 did not have the cash to cover the black holes in their pension schemes, the highest level on record. The pension deficits of FTSE 100 companies have jumped by £15 billion this year to a total of £65 billion, according to the KPMG Pensions Repayment Monitor.

Mike Smedley, pension partner at KPMG, said: “At first sight these figures look alarming. But they mainly reflect the consequences of the economic downturn on companies’ profits and cash flow.

“The key message to companies, pension fund trustees and regulators is to maintain a long-term view and avoid knee-jerk reactions.”

Over the past decade, the vast majority of large companies have closed final salary pensions, which guaranteed a certain level of income after retirement, for new workers.

Final salary schemes are now only commonplace in the public sector, although the Coalition is currently considering how to reduce the generosity of the taxpayer-funded pensions.